Mathematics, Volume 12, Issue 1
2024 January-1 - 168 articles
Cover Story: The authors introduce a novel option pricing model by adding stochastic interest rates and pure jump Lévy processes to an underlying price process driven by stochastic string shocks. They consider four different jump processes leading to different versions of the model: lognormal and double-exponential jump diffusions, CGMY, and generalized hyperbolic Lévy motion. In each case, they obtain closed or semi-closed form expressions for European call option prices. Moreover, they empirically evaluate the model's performance against S&P 500 call options. The findings indicate that (a) model performance is enhanced with the inclusion of jumps; (b) the model outperforms the alternative models with the same jumps; and (c) the model with CGMY jump offers the best fit across volatility regimes. View this paper - Issues are regarded as officially published after their release is announced to the table of contents alert mailing list .
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